Why Are Mortgage Applications Declined, and What Can I Do?

The common reasons

MoneyHelper lists these as the main reasons lenders say no:

• Credit history. Missed payments, defaults or a thin credit file.
• Too many credit applications in a short time before applying.
• Too much existing debt compared with income.
• Payday loans, particularly within the last six years.
• Errors on your credit file.
• Income too low, or hard to prove, which is common for the self-employed.
• A deposit that is too small for the deal or the property.
• Living in the UK for less than three years, with some lenders.

A lender can also decline because of the property, even when your finances are fine. Examples include homes without a working kitchen or bathroom and some high-rise flats.

First, find out why

Lenders don't always give a detailed reason, but you can ask which credit reference agency they used and check your file with it. Experian, Equifax and TransUnion all hold credit files. If something is wrong, ask the agency to correct it.

Don't reapply straight away

Each full application usually leaves a hard search on your credit file, and several in a short period can lower your score further. MoneyHelper suggests using soft-search eligibility checks, which don't usually affect your rating, before applying again. A mortgage in principle with a soft check can help test the water.

Quick fixes

• Register to vote at your address.
• Correct any errors on your credit file.
• Close or reduce unused credit where it makes sense.
• Check what you can realistically borrow with how much can I borrow?.

Longer-term fixes

• Keep up every payment on existing credit.
• Pay down debts, particularly expensive ones.
• Avoid new credit for about a year before applying.
• Save a bigger deposit.
• If self-employed, have at least two years of accounts and tax calculations ready. See mortgages for the self-employed and company directors.

Different lenders, different rules

Each lender has its own criteria, so a decline from one doesn't mean every lender will say no. MoneyHelper notes that a mortgage broker or adviser can check which lenders are more likely to accept a particular situation, for example someone who has used a payday loan in the past.